SISA publishes position paper on Crown outsourcing

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Friday 9 December 2016

8 December 2016

SISA statement on plans to privatise public sector workers compensation claims

Reference the article on page 6 of the Advertiser 8 December 2016 – ‘Minister coy on privatised insurer’.

SISA has had no role in these plans, however we know that this project has been under way for most of CY 2016. SISA has not been consulted at any stage and has had to obtain its information by other means.

The entire matter is all very secretive. The lack of consultation with SISA combined with the secrecy suggests that this is a project whose ultimate cost-benefit can be easily shown to be negative. Attempts by the media to obtain information from the Government have been effectively brushed aside – ‘nothing to see here’, when it is common knowledge that the project is well under way.

John Walsh, Director of DW Fox Tucker Lawyers, published an article on 2 December 2016 that bluntly attributed this move to an undisclosed agenda – private underwriting of the entire RTW scheme. SISA concurs with John’s conclusions – that privatising the public sector claims is just a preliminary step to fatten up the scheme before privatising it and pocketing the compensation fund.

We take the view that to do this at the expense of a very efficient and cost-effective public sector self-insurance system sacrifices the interests of the affected injured workers and the taxpayer, who will have to foot the Bill for much increased costs. In its current fully-funded state with capped statutory benefits to drive that full funding into the future, the scheme is attractive enough for insurers. Feeding the public sector to them as well at a net cost to everyone but the Government and the scheme seems to us to be sheer folly.

There seems to be no actual business case for it beyond giving the Government a large windfall from the Compensation Fund when the private insurers move in, (as happened when the compulsory third party scheme was privatised). The public sector has easily out-performed RTWSA/WorkCover across the years based on published information. Compared to RTWSA/WorkCover, the public sector has consistently delivered:

  • Proportionally far lower claim liabilities (around 10% of total SA liabilities, despite it being about 18% of the scheme)
  • Proportionally lower total claim costs
  • Lower administrative costs
  • Better return to work rates

We strongly suspect that the Bentley-Latham Review report actually reported these trends. Having failed to justify the privatisation of public sector claims, that report has remained a closely guarded secret.

Quite aside from the lack of financial justification, there is also the inexcusable and unjustifiable loss of the public sector staff who manage the claims and return injured workers to work. Their performance and skills are reflected in the performance of the public sector as summarised above. These are no ordinary public servants but highly skilled and very experienced professionals with an overall level of expertise RTWSA cannot hope to match by managing claims externally.

There are large financial risks in what is being planned:

  • In any insurance pool, cross subsidies are inevitable – they usually flow from large to small employers in workers compensation schemes
  • Assuming there is a separate Crown premium pool, (which would have to be necessary to isolate both pools from even greater cross-subsidies), the cross-subsidies between agencies will be vast unless there is a super-sensitive experience rating component (which, taken to an extreme, would be tantamount to self-insurance by any other name)
  • The experience-rated cost to many agencies will inevitably be much greater than current SI costs for any agency with complex time-lost claims. Furthermore, those agencies with relatively fewer time-lost claims will be cross-subsidising those that have more (assuming that the experience rating is less than 100% of their claim costs). To this extent, the higher-risk agencies will have de-sensitised premiums and arguably a lesser drive to improve health and safety performance than if they were covering 100% of their own costs.
  • In most cases, for agencies with higher levels of complex time-lost claims, the experience is due to the high-risk nature of the roles they carry out. To a large extent, these agencies will be very limited in their ability to rein in these risks, which will perpetuate these significant experience premium costs and cross-subsidies, which are, after all, paid by the taxpayer.

We are pressed to wonder the extent to which those who are pressing for this to happen have considered these very real downsides, or if they have, the extent to which they even care that there will be these cost increases and cross-subsidies.

We are also pressed to wonder how well-equipped generally RTWSA is to manage the complex Crown arrangements. For example:

  • Understanding the many Acts; for example Police, Health, Education, Public Service, Courts that all set conditions that influence entitlements outside the RTW Act
  • Keeping track of the wide range of EBAs, most of which affect entitlements in different ways; for example, who will pay ex gratia entitlements beyond the RTW Act caps that are being added to the Police EBA, and how, and when?
  • Managing the many very complex claims – police, emergency services, corrections, secondary teaching and the like. We note in passing that RTWSA took back from the claims agents all of the serious and complex claims some years ago. One has to ask what that says about the capabilities of the current claims management model overseen by the Corporation.

This can also be seen as an attempt to show that self-insurance generally is not as good a model for workers compensation as insuring with RTWSA is. Our response is to quote the Minister:

“…it is clear…that the overall performance of the self-insureds in respect of exactly the same statutory framework…is more impressive…the single most significant difference I have been able to ascertain from my looking at the problem is the effective personal attention they give to individual claimants…..” Hon John Rau MP June 2013

So the plan is to take that away that impressive performance and personal attention to injured workers in exchange for:

  • Higher overall costs
  • Risk of liability increases
  • Reduced role of the workplace in recovery and RTW
  • Less personal attention to injured workers
  • Major loss of industry expertise and knowledge

The more we look at it, the more this seems to be a project in search of a rationale.
SISA can’t see a single practical or financial thing that says that this is a good idea. We can see plenty of reasons why it isn’t. Yet it seems to be happening anyway.

If private underwriting and pocketing a large part of the employer-funded RTW Fund is not the objective, the Government must say so. It must then explain why it is putting the interests of the taxpayer and current and future injured public sector workers at such risk by secretly disposing of a system that performs better than the system to which it is to be handed over.